Tuesday, June 2, 2020

Auto Sales … Coronavirus (Covid-19) … Stock Market Analysis … ETF Trading … Dow 30 Ranking

“Trade what you see; not what you think.” – The Old Fool, Richard McCranie, trader extraordinaire.
 
"This imaginary person out there - Mr. Market - he's kind of a drunken psycho. Some days he gets very enthused, some days he gets very depressed. And when he gets really enthused, you sell to him and if he gets depressed you buy from him. There's no moral taint attached to that." - Warren Buffett
 
“The big money is not in the buying and selling. But in the waiting.” - Charlie Munger, Vice Chairman, Berkshire Hathaway
 
AUTO SALES (Reuters)
“Several automakers on Tuesday reported stronger-than-expected May sales in the United States, and the Detroit automakers said they will work through their annual summer shutdowns to rebuild inventories as demand recovers from coronavirus shutdowns. The U.S. auto sector has reopened assembly plants following the shutdown and automakers that reported May sales said they saw signs of recovery in consumer demand.” Story at…
 
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website as of 5PM. There were 16,000 new cases today, about 5,000 fewer than yesterday. The 14-day growth factor was 1.04, indicating growth in new cases of about 4% per day.  The curve is flattening rather fitfully and growth in new cases remains. We need to see a growth-factor below 1.0 before we can be optimistic.
 
These numbers are based on U.S. totals; local data will be different.
 
MARKET REPORT / ANALYSIS         
-Tuesday the S&P 500 rose about 0.8% to 3069.
-VIX dipped about 2% to 27.61.
-The yield on the 10-year Treasury rose to 0.685%.
 
It looks like we are headed for a good old-fashioned blow-off top. At that point, we’ll probably see a number of top indicators flashing sell, including Bollinger Bands and RSI.  They are both getting closer to a sell, but it appears that it will take a while longer. Once the rally ends, it’s a guess whether it will lead to a retest of the low or a smaller pullback, say in the 5% range. I lean toward a more significant pullback, but it’s just a guess at this point.
 
The daily sum of 20 Indicators improved from +7 to +8 (a positive number is bullish; negatives are bearish). The 10-day smoothed sum that negates the daily fluctuations remained +71. (These numbers sometimes change after I post the blog based on data that comes in late.) Most of these indicators are short-term.
 
A few bear signs remain:
-Breadth on the NYSE vs the S&P 500 index has drastically diverged from the S&P 500 index in a bearish manner.  The Index remains way too far ahead of breadth, at least using moving average comparisons that have usually proved to be correct.
-The S&P 500 has been crawling along its Upper trend line for the last 5 sessions. That may continue or not, but it does tend to limit the possibility for big jumps higher. It also suggests the odds of a dip are slightly more than the odds of going higher.
 
Most indicators remain bullish.
 
I increased stock holdings to about 30% of the portfolio total Tuesday, and will add more later. I still doubt the rally so I’ll add slowly, but there are too many bull signs to be as far under-invested as I have been.
 
MOMENTUM ANALYSIS:
TODAY’S RANKING OF  15 ETFs (Ranked Daily)
 
The top ranked ETF receives 100%. The rest are then ranked based on their momentum relative to the leading ETF.  The highest ranked are those closest to zero. While momentum isn’t stock performance per se, momentum is closely related to stock performance. For example, over the 4-months from Oct thru mid-February 2016, the number 1 ranked Financials (XLF) outperformed the S&P 500 by nearly 20%. In 2017 Technology (XLK) was ranked in the top 3 Momentum Plays for 52% of all trading days in 2017 (if I counted correctly.) XLK was up 35% on the year while the S&P 500 was up 18%.
*For additional background on the ETF ranking system see NTSM Page at…
 
TODAY’S RANKING OF THE DOW 30 STOCKS (Ranked Daily)
The top ranked stock receives 100%. The rest are then ranked based on their momentum relative to the leading stock.
For more details, see NTSM Page at…
 
TUESDAY MARKET INTERNALS (NYSE DATA)
Market Internals slipped to NEUTRAL on the market.
Market Internals are a decent trend-following analysis of current market action, but should not be used alone for short term trading. They are usually right, but they are often late.  They are most useful when they diverge from the Index.  In 2014, using these internals alone would have made a 9% return vs. 13% for the S&P 500 (in on Positive, out on Negative – no shorting).
 
Using the Short-term indicator in 2018 in SPY would have made a 5% gain instead of a 6% loss for buy-and-hold. The methodology was Buy on a POSITIVE indication and Sell on a NEGATIVE indication and stay out until the next POSITIVE indication. The back-test included 13-buys and 13-sells, or a trade every 2-weeks on average.  
 
My current stock allocation is about 30% invested in stocks. You may wish to have a higher or lower % invested in stocks depending on your risk tolerance.